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(Bloomberg) — In the quiet days before Christmas last year, when most venture capitalists had retreated to vacations in Aspen or Jackson Hole, the investment team at Lightspeed Venture Partners was considering making a bid for part of OpenAI rival Anthropic.
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The venture capital firm approached Anthropic with an offer to lead a multibillion-dollar investment, according to a person familiar with the matter. An agreement quickly took shape: a funding round of $2 billion for a valuation of $60 billion, triple the value of the startup a year earlier. By early January, the deal was effectively concluded.
With $25 billion under management, Lightspeed is part of a rarefied stratum of venture capital firms willing and able to back the hottest and priciest tech companies. In addition to Anthropic, Lightspeed recently participated in a major funding round for artificial intelligence company Databricks Inc. that valued it at $62 billion, as well as an investment in Elon Musk’s xAI at a valuation of 50 billion dollars.
AI megadeals have become a staple of the high-profile venture capital regime despite the risks, including the fact that companies have yet to prove they can profit from these investments.
“It’s high-stakes poker,” said Tim Guleri, managing partner of Sierra Ventures, an AI investor.
In the last three months alone, xAI, OpenAI, and Anthropic have raised more than $20 billion to support their massive IT costs. These transactions collectively value the three companies at more than $250 billion. In total, U.S. AI startups raised a record $97 billion in 2024, according to PitchBook data.
For venture capitalists, there is growing pressure – particularly on those who missed the opportunity to back the biggest AI companies at lower prices – to align with the major players before it is too late, investors said. Representatives for Lightspeed and Anthropic declined to comment for this story.
“It shows you’re in the game,” said Peter Werner, co-chair of Cooley’s venture capital practice group. “What you don’t want to be is a VC fund that’s trying to be in the mix, missing something or developing a reputation that you’re not nimble enough to participate in the biggest rounds. best and hottest.”
Venture capital change
Lightspeed was founded more than 20 years ago in the wake of the Internet industry collapse by Barry Eggers, Christopher Schaepe, Peter Nieh and Ravi Mhatre, who led the Anthropic negotiations. It is best known for its shrewd investments in consumer technology, financial technology and enterprise software, and made early bets on companies like Snap Inc., Affirm Holdings Inc. and Rubrik Inc. Despite its track record, the company has not yet become such a household name. like some of the most famous entry-level VC players. With its aggressive bets on AI, insiders say these deals could sustainably elevate its reputation – if they succeed.
Like much of the venture capital industry, Lightspeed has shifted its focus toward AI startups, backing early-stage companies such as music company Suno Inc. and video startup Pika, in addition to more important players. In December, the firm parted ways with its two largest consumer investors and said it was adjusting its consumer investing strategy to better fit the “age of AI.”
In total, Lightspeed has already invested $2.2 billion in AI deals, a figure that does not include its latest Anthropic investment, according to another person familiar with the matter. Soon it will have additional firepower to deploy against cash-hungry companies. A fundraising effort expected to bring in $7 billion is coming to an end, a source close to the matter said. A Lightspeed spokesperson declined to comment on the fundraising. The Information previously reported on the fundraising efforts.
The company’s Anthropic investment is one of its most ambitious to date. And while the $60 billion value may seem exorbitant, Lightspeed’s partners hope the deal will one day look like a bargain.
“Overall, it looks like valuations are high because we’re seeing a lot of activity and a lot of deals,” Lightspeed partner Guru Chahal said at a Fortune Brainstorm Tech conference last year. “When you look back, every ride, at the time, seemed incredibly expensive and, in retrospect, was incredibly cheap.”
Big AI deals remain a source of debate in Silicon Valley. While the biggest companies appear to be the most transformative, some venture capitalists say participating in huge fundraising rounds won’t yield the returns tech investors need to satisfy their backers. These investors target small AI applications and services, rather than giants like Anthropic and OpenAI, engaged in developing the expensive building blocks of the industry.
The recent proliferation of AI megadeals also speaks to a broader shift in venture capital: a departure from the traditional early-stage investment strategy, in which companies acquire larger stakes at higher valuations. weak. Today, venture capital firms are paying a large premium and betting that a small number of AI companies could eventually be worth more than $1 trillion.
The growing size of venture capital funds has also forced companies to write larger checks, Weber said. Rather than aiming for massive multiples on their investments, companies are “not necessarily trying to find runs, they’re trying to find ways to double their money,” he said.
“There are only a limited number of iconic, generational pre-IPO companies today,” said Ajay Vashee, general partner at IVP. “If your mandate is to invest at this stage, then you need to find opportunities to grow your capital.”
Weak start
The race to find these opportunities carries many risks, including regulatory uncertainty, fierce competition, and skyrocketing infrastructure costs for leading AI developers.
Investors fear their AI bets won’t pan out, leaving companies exposed if the bubble bursts. The industry has already seen multibillion-dollar companies stumble.
For example, Lightspeed co-led a high-profile investment in Stability AI, the developer of the Stable Diffusion image generator, valued at $1 billion in 2022. Shortly afterward, several key developers resigned from the company in a context of growing tensions with the CEO of Mercurial. Officer Emad Mostaque, prosecution and financial difficulties. Mostaque resigned from the company in early 2024. The company has since named a new CEO and raised additional capital, Bloomberg reported.
Lightspeed is also a major investor in Mistral, the Paris-based open source company now competing with a host of better-funded language models.
Of course, Lightspeed and other big venture capital firms hope that placing multiple bets on competing companies will produce at least one big AI winner. Otherwise, the consequences could be significant.
“You can’t lose too many games of this high-stakes poker,” said Guleri of Sierra Ventures. “That’s the risk of strategy.”
